The Financial Secretary, Mr John C Tsang, together with the Secretary for Financial Services and the Treasury, Professor K C Chan; the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung; the Secretary for Development, Mr Paul Chan; and the Government Economist, Mrs Helen Chan, held a press conference in the Auditorium, Central Government Offices, Tamar, today (October 26). Following are the opening remarks by the Financial Secretary at the press conference:

I shall now give you a summary of what I just said.

The Government has decided to launch another round of demand side management measures for residential properties. We hope that these measures, together with those measures announced earlier for increasing supply, will help narrow the supply-demand gap and contribute to the stable development of our property market.

Property Market Analysis

First, a brief analysis.

In the last few years, the demand for home ownership by local residents has been strong. Due to the persistent ultra-low interest rates, demand from both local and foreign investors has increased substantially. But supply has been low by comparison.

We have launched several rounds of measures to ensure that our market continues in a healthy state. The Chief Executive announced in August this year 10 measures to further increase housing land supply in the short-and-medium term. The Hong Kong Monetary Authority has tightened mortgage lending terms. The Special Stamp Duty (SSD) introduced in November 2010 has significantly reduced the demand for short-term speculative activities. These measures have helped improve the situation.

However, the exceptionally low interest rate environment will last for an extended period of time because of quantitative easing efforts of the major economies. The market is expecting that property price will continue to increase.

On the other hand, affected by the euro sovereign debt crisis and slow recovery of the US market, the economy of Hong Kong has shown signs of slowing down. It is apparent that the property market and the local economy are heading in different directions.

The risk of a property bubble forming is increasing. This may undermine macroeconomic conditions of the community as well as the stability of our financial system, threatening people's livelihood.

We are also concerned that the price of small-and-medium sized flats has increased by 21 per cent in the first nine months of 2012, much faster than the 11 per cent of larger flats. Even with prevailing low interest rates, the affordability ratio has increased to 50 per cent in the third quarter of 2012. If interest rates were to go up by three percentage points to the level before the financial crisis in 2007, the ratio would shoot up to 65 per cent, far exceeding the average of 50.4 per cent in the past 20 years.

Since we launched the SSD in November 2010, resale within 12 months has virtually disappeared. However, the number of transactions for resale between 12-24 months has increased from 83 cases in March this year to 218 cases in September. It seems possible that the increasing property price has weakened the deterring effect of the SSD.

The US Federal Reserve has extended its pledge to maintain exceptionally low interest rate at least until mid-2015. I am concerned that this may extend the investment horizon of short-term speculative activities.

The number of residential property transactions taken up by non-local buyers has also gone up from 3.1 per cent in 2008 to 4.5 per cent in 2010, and 6.5 per cent in 2011. As regards the primary market, the corresponding figures are 5.7 per cent in 2008, 13.7 per cent in 2010 and 19.5 per cent in 2011.

These figures suggest that we need to work on demand side measures, in addition to the supply side measures that we have issued earlier.

New round of demand side management measures

We are introducing two demand side management measures today. The first measure is to increase the SSD rate and extend its restriction period. The restriction period will be extended from two years to three years. The SSD payable for resale within six months will increase to 20 per cent; 15 per cent if the property is held for more than six months but less than 12 months; 10 per cent if the property is held for more than 12 months but less than 36 months.

The second measure is to introduce a Buyer's Stamp Duty (BSD) payable by buyers of residential properties. The BSD is not applicable to Hong Kong Permanent Residents (HKPRs). Other buyers, including local and non-local companies, are required to pay BSD at 15 per cent on top of the existing stamp duty. SSD will also be charged on resale within three years.

We are aware that BSD will cause inconvenience to some non-local buyers. We hope that they will understand that this is an extraordinary measure introduced under exceptional circumstances. We shall consider withdrawing this measure when the market regains its balance.

Effective Date

These two measures will go into effect after midnight tonight (i.e. October 27, 2012). Properties acquired today or before today will not be affected. We shall introduce the necessary legislative amendments to the Legislative Council as soon as possible.

Epilogue

I would like to emphasise that the objective of the two new measures is to help alleviate the demand for housing by according priority to meeting the needs of Hong Kong Permanent Residents, under the exceptional circumstances of an overheated property market with supply shortage.

We are fully aware that the core problem of Hong Kong's property market is the shortfall of supply. With the efforts in the past few years, the housing supply will increase in the coming three to four years.

Maintaining a healthy, stable property market will be our ongoing endeavour. We shall continue to monitor the market closely. And if necessary, we shall introduce further measures to maintain the healthy and stable development of our market.